Living Paycheck to Paycheck On Purpose

This is a guest post, written for Consumerism Commentary by Single Ma. Single Ma is the author of Fabulous Financials, a blog presenting a chronicle of a 30-something single mother’s pursuit of financial independence.

I’m paid bi-weekly, which is typically twice per month. Every now and then, there’s a month or two sprinkled throughout the year when I’m paid three times per month. But regardless of how often payday arrives, most of my salary is already spent before I see a dime. Why? Because, excluding taxes, there are several transactions that process automatically through payroll allotment:

$574 goes to 401k

$185 goes to IRA

$150 goes to emergency fund

$74 goes to my daughter’s 529 account

$38 goes to FSA

$Big Chunk goes to employer benefits (health, life, pension, etc.)

By the time I receive my “real” paycheck, it’s less than half of what I actually earned, which is ok with me. All of my financial priorities are accounted for, so I have fewer things to worry about. Automation also locks in the funds to make sure I achieve my financial goals (e.g. max out 401k, IRA, and tax deductible college savings).

However, the challenge is being able to control expenses and live on the remaining ~45%. And baby, please believe, this is a challenge indeed! Just to give you an idea of what I’m working with, here are my major monthly expenses:

$1,825 Rent (an entire paycheck + some)

$1,600 Mortgage (always in reserve but paid by tenants)

$300 Utilities

$300 Food & Essentials

$170 Transportation

None of this includes discretionary spending, such as donations, doctor’s visits, personal grooming, pet expenses, dining out, entertainment, and the occasional fabulous shoe shopping excursion. So if something out of the ordinary happens, such this month when I need new tires, I find myself strapped for cash — or dare I say BROKE — before the month is over. Because incurring debt is NEVER an option, I have to make hard and fast choices about how I will manage the rest of my cash flow. A few things I’ve done so far:

Forgo all shopping until things are back to normal.

Skip a bi-weekly salon visit and wash & set my own hair.

Brown bag and invite friends to my office for lunch.

Choose between the wine festival and the banging concert of the year.

You’re probably thinking, “I work hard for my money and I deserve…” but that mentality will cripple you financially. We can never have it all. I guess if I really wanted to, I could opt to change anything that causes me to be short on cash. Am I willing to reduce my retirement contributions? NO! Reduce my emergency or college fund savings? I don’t think so! Move to a cheaper apartment in a less desirable neighborhood and settle for a less than desirable school district. Absolutely not! Instead, by prioritizing my needs and being selective about my wants, I am able to strike a balance to live a fabulous lifestyle AND achieve my financial goals.

There was a time in my life when I lived paycheck to paycheck because I had to, but now, I do it on purpose. And I like it!

Here’s someone who is happy to have tenants pay her monthly $1,600 mortgage but who mocked me for wanting to own a 400-sq ft home so that I could build wealth instead of paying rent and making someone else wealthy.

What’s wrong with owning a 400-sq ft home if that’s all you can afford?

Needing new tires shouldn’t be a huge suprise, tires wear out, it should be something you plan for just like you do with other “big” expenses, so when it happens it’s just a minor annoyance and not a huge deal

Great post. I do pretty much the same thing. I find that creating ‘articial scarcity’ keeps me on the right path and keeps my spending in check. Sure I work hard and ‘deserve’ nice stuff but I’d rather retire early than accumulate trinkets.

The author doesn’t give a lot of detail really, but new tires should not be an “out of the ordinary” expense. Vehicles require maintenance, it should be a budgeted expense. I realize not everyone “budgets” by the penny on paper, but even a mental or rough budget has to factor in these basic needs, of which if you need a vehicle, maintenance is a basic need.

“Out of the ordinary” expenses, which in my mind are usually high-dollar issues – say the engine blew in the car and cost $3,000 – should be handled by the emergency fund, that’s why it’s there.

I guess what I’m saying is – in a good financial plan, the structure should protect against pretty much anything causing your monthly cash flow to be so impacted.

I’m also not clear on the mortgage payment – is it a monthly expense that you pay yourself even through the tenant is also, or do you just pay the $1600 in anticipation of the tenant’s rent? I hope you’ve got about 6 months of that mortgage in the emergency fund, otherwise that’s a BIG black cloud if your tenant turns into a deadbeat.

It can easily take 6 months from a first missed payment, to recognizing a big problem, to force an eviction, to rent a property again.

@ far out – Or is it minimum wage? Whatever name you choose to go by today. LOL I simply asked “did he really say 400 sq ft?” I don’t consider that mocking at all. There’s nothing “wrong” with owning a 400 sq ft home but I’ve never seen one before. Good luck on your quest to homeownership.

@ chicago – Buying new tires isn’t a big deal to me at all, nor is it an annoyance. My car needs tires, like I need shoes. It’s a simple necessity that affects my finances like everything a consumer must buy.

@ savvy – I think my past experience has prepared me to live on so little. Now I’ve become accustomed to it. As long as my needs are met, I consider the rest as “extra.” Being debt free makes it easier too.

@ brian – To me, “out of the ordinary” is ANY non-recurring expense that I don’t have to pay every month. Cutting back on non-necessities to cover those expenses is a sufficient financial plan that works for me. It doesn’t require debt and it won’t break the bank.

re: mortgage question, I have an emergency fund that will cover 9-12 months of basic necessities and I also keep a separate reserve if my tenants don’t pay. I’m well prepared for a “worst case” scenario.

Wow. This post speaks directly to how I live. I bring home 62% of my pay rather than 45% as this author does, but it works out exactly the same in the end. I had a bad habit for a while of whipping out the credit card at the end of the month when the money was down to nearly zero. I still [slowly] built wealth because so much cash was pulled out off the top but I also ran up a couple thousand in debt in the process. So now, after I pay all of my debt (including mortgage) I’m down to 24.9% of my gross to pay utilities, food, transportation, and fun. That means my debt payment and mortgage comes to 37% of my gross. I feel like I am living paycheck to paycheck (but I am managing to save). What motivates me to get better and pay off debt is to think of what my life would be like if that 37% were spent half on living and half on savings rather than on debt! That would be the life!

“So if something out of the ordinary happens, such this month when I need new tires, I find myself strapped for cashâ€”or dare I say BROKEâ€”before the month is over.”

You said broke… now you say it won’t break the bank. Based on the info given, I can only comment on what I read. I consider BROKE as breaking the bank, maybe it’s just semantics.

ANY non-recurring expense you don’t pay every month is a pretty inclusive statement, and certainly not one I imagine could be covered on a consistent basis by simply “cutting back on non-necessities.” It means you are either going to have to dip into your emergency fund more often, or constantly be juggling.

*I* would not be very comfortable in my financial plan if putting tires on my car meant I couldn’t get a haircut that week, or grab a sandwich for lunch. That was the old me, I remember him well, and I don’t ever want to be him again. I like knowing the money is ready when I need tires, and that I don’t have to rearrange all of my other spending just to cover. It keeps things running smooth, and it doesn’t trigger emotions that cause poor decisions.

Personal Finance is just that – personal. If your plan is (truly) working for you, then that’s what you need to be doing. My plan works for me.

@ Adfecto – You’re right! When the debt is gone, throwing large sums at your savings or investment acct is great feeling!

@ Brian – Yes, I think it’s a matter of semantics. Based on the amount of discretionary $$ I’m used to having, when it’s significantly reduced, I consider myself “broke” but I certainly don’t mean it literally. And I agree, personal finance is personal. As long as my financial goals are being met and my necessities are covered, everything else is gravy. If I have to do without something that I “want” because something more important came up, I don’t mind.

@ Card Master – Why are my exact contributions to employer benefits important in the context of this post? I don’t know the amount right off hand, but if there is some value to knowing that information, I may consider looking it up for you. Perhaps, there’s something specific you’re trying to figure out. If so, just ask.

I often live exactly like this. Frankly, because so much of my financial life is automated, (investments, savings, certain payments, etc.), it is not unusal for me to have less than $100 cash to get me to the next paycheck. Out of that money, I pay for my daily living expenses for the two weeks. It feels like I am living paycheck to paycheck, even though, like Single Ma, I am not technically doing so.

I also understand “feeling broke.” I had to spend $1K unexpectedly on my car recently, (go in for an oil and filter change, come out with new brakes and tires). Was the money there? Yes? Did I feel broke? Yes…because I am used to a certain level of savings. Therefore, I have enforced some personal “economies” until my account is back to where I want it to be.

I’m with you there Single Ma on living artificially paycheck to paycheck. By choice I only take home about 43% of my income and force myself to live on that. But I do “pay a bill” each month which is into my savings account for occasional expenses like when I have to do my 60k mile check up (which I have to do some time in the coming weeks since I’m already over the 60k mark). This way my artificial paycheck only have to cover my typical monthly living expenses and I don’t have to take these expenses out of my already very limited income.

I am a faithful reader of Single Ma’s and I found this to be another great article, FABULOUS as always Single Ma! Although this seems to be a interesting read here at Consumerism Commentary it is ashame they have such negative, holier than thou commenters who instead of looking beyond the words to get the deeper meaning of the article feel the need to pick it apart as if she has no idea what she is talking about. I mean come on did you really get that she was “BROKE” out of the piece and had no back up reserve? Do you think that this blog would have her as guest author if they thought she was not together? Get off your high horses and quit being so cynical! Instead have a look around her blog and give Single Ma her props for doing what most only dream of doing with 2 incomes and she has done it by her self raising her “Baby Girl”.

It depends a LOT on your state laws and the speed of your court system. Where I live, an eviction can usually be completed in about a month from the time of a missed payment.

On the 5th day past due, you can serve (I think) a 7-day Notice to Quit, then you can file for eviction and get a trial date scheduled in 2-3 weeks. If the tenant loses in court, he has 24 hours to vacate or have his possessions moved out to the curb.

Because screening, credit, and background checks are widespread today, formal eviction (which shows up in record checks) is something people try to avoid.

I attended a morning of eviction trials for a property management course, and of a few dozen scheduled trials, half were settled ahead of time and most of the others were settled informally pre-trial the same morning. Only two or three actually went to (a very brief) trial.

Great job as you balance between financial and personal goals! It’s great that you automatically have your money moved out to appropriate places. Good luck I’m sure your well on your way to reaching your goals.

Great post! I completely understand where you’re going with the “paycheque to paycheque” mentality. I too spend a large chunk of my paycheque before I even get it with contributions to retirement, health & insurance benefits, 3 additional forced savings accounts (one for a new car in a few years, vacation/home fund, and the emergency fund) as well as my mortgage.

Then I live off the remainder while still saving some money at the end of every 2 weeks to leave in my chequing account for a weekend getaway, shopping expedition, or a non-recurring expense.

For example, my property taxes are due in a couple of months and I’m trying to cut back on my non-necessities in order to pay them, rather than dipping into my home fund.

I don’t mind missing a lunch or dinner out, or going to a cheaper salon occasionally. It’s a strategy that works for me as a type of forced savings. Sometimes my friends bug me when I say “I’m broke” – of course I’m not – I just try to make more careful choices about how to spend the money I take home.

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About Luke Landes

Luke Landes founded Consumerism Commentary in 2003 and has been building online communities since 1990. Luke has contributed to PC World Magazine, US News, Forbes, and other publications. Read more about Luke and about Consumerism Commentary.

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